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Introducing a discussion of some of the ways in which accounting and other calculative
mechanisms are involved in environmental matters, the article focuses on a number of
questions that emerge from accounting for carbon emission permits and corporate environmental reporting. Both are areas where there is already a need for more research and
where that need will increase in the coming years. Identifying some of the interests and
pressures that already inuence approaches in the area, the case is made for the need
for both critical and facilitative research.
2009 Elsevier Ltd. All rights reserved.
Introduction
Accounting has already started to be implicated in the
consideration of environmental issues and the probability
is that its involvement will develop further over the coming years. As greater acknowledgement is given to the role
of human agency in the environmental sphere, the need for
different approaches to both conceiving and acting upon
human and organizational interaction with the environment has started to be recognized, albeit still far too
slowly. There are, as a consequence, more signs of an
emerging awareness that many aspects of human life are
likely to change, even including accounting and other calculative systems. As changes occur in our concepts and focus of accountability for the environment, the demands for
different ows of information, accounting and otherwise,
are also likely to grow.
Of course much could already be done to alleviate some
of the major environmental difculties if there was a will
to act. But that will is only very weakly developed in most
countries of the world and in most spheres of life. It certainly has been largely absent at the political and the corporate levels, both arenas were rhetoric has often been a
long way ahead of action and were, as a result, remarkably
little has been done in the majority of cases. All too often
the desire to act has only found a verbal expression, action
* Tel.: +44 1865 228 472; fax: +44 1865 288 651.
E-mail address: Anthony.Hopwood@sbs.ox.ac.uk
0361-3682/$ - see front matter 2009 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2009.03.002
itself being more inuenced by political inghting and corporate lobbying and inuence. Even now, as the ndings of
environmentalists and scientists get ever more certain and
disturbing, the vast majority of politicians still have difculty in responding, continuing to put what they see as
their short-term economic and political imperatives above
the longer term interests of the human race.
However, although a strong will to act might result in
less call on calculative devices, including accounting, to
construct new patterns of incentives and visibility, I sense
that the role of calculation would still not be minimal.
Trade-offs would still have to be evaluated, interests would
still diverge, thereby suggesting a role for incentives to
engender change, intentions would still need to be checked
against achievements, and there still would be areas where
careful analyses of alternative approaches would need to
guide action. The desirability of bio-fuels, for instance, certainly cannot be taken for granted given the complex patterns of interdependences that their production entails
with that of food and the preservation of biodiversity and
natural habitats and their wider environmental consequences (Scharlemann & Laurance, 2008). Current discussions over the desirability of otherwise of replacing old
cars with more fuel efcient ones give rise to similar calculative complications (Monbiot, 2009; van Wee, Moll, &
Dinks, 2000). In both of these and a multitude of other
areas quite complex assessments and calculations need
to be involved in the appraisal of alternative ways of moving forward. Moreover curiosity alone could and most
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likely should result in an investment in greater transparency, particularly if social and environmental values are
to function alongside economic ones. So a dream of a
post-calculative society is certainly a very long way away
and possibly should not even be entertained at all.
A case can therefore be made that calculation, including
that of new forms of accounting, is likely to be a signicant
feature of a world not only conscious of environmental issues and constraints but also committed to achieving a
more harmonious relationship between the human and
natural worlds.
Of course accounting has already become involved with
these issues, both consciously and otherwise. Not only this,
but there are also signs that at least some degree of learning has taken place and is slowly, albeit perhaps too slowly,
giving rise to the creation of new agendas in the accounting area. So whilst early initiatives in the area of corporate
environmental reporting might have achieved very little,
even on occasions creating a degree of corporate legitimacy that shielded what was really going on, there are
now some signs of pressures for more extensive and transparent approaches. Although in many areas conventional
approaches to accounting stand in stark contrast to emerging environmental considerations, the potential conicts
have also started to be recognized, again albeit slowly. Prevailing approaches to costing certainly ignore many of the
indirect consequences of corporate actions on the environment, but this is something that is increasingly being
acknowledged (for an early discussion see Gray, Bebbington, and Walters, 1993. Existing means of project appraisal
also tend to favour short-term results and thereby often
used to argue against more environmentally sustainable
approaches, not least in the areas of energy and transportation. But here too, the dilemmas so created are slowly
starting to be discussed, if not changed (Broome, 1992;
Portney & Weyant, 1999; Weitzman, 1998 and Weitzman,
2001). At least there is now some recognition of the role of
conventional discounting technologies in minimising the
signicance of future consequences and impacts, not least
in the context of the inuential Stern Report (2007) whose
very ndings and recommendations were dependent upon
the application of an alternative approach to calculating
the future, namely the application of a declining discount
rate across time. In numerous other areas of current environmental and sustainability concern there are now some
signs of an emerging interest in more careful analysis
and calculation, often including economic and nancial
calculation. Rather than assuming the automatic superiority of certain approaches and solutions, at least some people are now trying to delve deeper into the assumptions
involved and into the wider issues that might be at stake.
Relative costs and the demands made on nancial resources are becoming a more prevalent part of such exercises, in the process raising questions about the adequacy
of prevailing understandings about costs and their association with very particular assumptions about the nature of
organizations and their boundaries.
As the papers that follow illustrate, the creation of a
market in carbon emissions is one arena in which accounting and the environment have become intertwined for
better or for worse. The result of an apparently simple
Can, one wonders, the ethical considerations of the environmentalists be transferred to the economic market
place? Or will the values of the market place overwhelm
those of the environmental sphere, introducing a totally
new set of unanticipated consequences and actions which
are likely to be to the longer term detriment of the original
concerns? For while the underlying abstract logic of the
cap and trade scheme appeared rational and clear, operating in the complex world of institutional inuences introduces a multitude of factors that did not enter into the
original justication. Even a temporary collapse of the carbon market in the current recession only adds to such
worries.
All this suggests that this is an area where many research questions remain, some of paramount importance
for evaluating the likely outcomes of such cap and trade
schemes, and for designing and evaluating alternative approaches to carbon reduction (also see Bebbington & Larrinaga-Gonzlez, 2008). The articles that follow are
suggestive of a number of the rich lines of investigation, together opening the door on an area of inquiry where
accounting has been involved but accounting research
has so far seemingly lagged behind that in the environmental and social sciences.
An illustration of the need for more research into the
interface between accounting and environmental considerations came to my attention through a recent incident
in the United Kingdom. In these relatively early days of
the European Emissions Trading Scheme companies are given a specied number of emission rights for free, thereafter having to buy any additional permits which they
require on the market, or pay a penalty. The idea behind
such an approach was to reduce corporate resistance to
the scheme and to provide a learning period during which
the new market could develop. In practice, however, at
least two difculties have emerged. First, many companies
in the majority of polluting sectors were given more emission permits than they required, thereby having the opportunity to either sell the spare permits, earning immediate
cash incomes, or bank them for use in the later phase of
the scheme when it is intended that all permits should
be bought. Either way, rather than polluters having to
pay, in many cases polluters have been paid! The distribution of permits was made by the relevant European governments, ofcially on the basis of past experiences and
future plans but also, it would appear, on the basis of intense corporate lobbying and governmental characterisations of their short-term national interest. So electricity
generators were systematically provided with appreciably
less permits than they needed, at least in the United Kingdom, the argument being that because rms in this sector
are not subject to international competition, they are in a
position to pass on to their customers the additional costs
of acquiring further permits. It certainly would appear that
corporate interests and fairly conventional short-term
nationalistic economics were given priority over environmental considerations, despite the underlying rationale
for the scheme. And the second difculty stemmed from
this. While the cost of any additional permits purchased
on the market would enter into the normal costing structure of a rm, that indeed being the original intention of
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a scheme designed to provide economic incentives to reduce carbon emissions, how were the free permits to be accounted for?
In a paper that follows Allan Cook (2009) outlines the
discussions and debates about accounting for emission
rights that occurred in the International Accounting Standards Board. Those discussions are still ongoing, pointing
to both the politics and lobbying that surround the issue
as well as the conceptual and technical issues involved.
Not unrelated issues surrounded the attention given to
emission rights accounting in the United Kingdom where
sections of the press were interested in the fact that
although electricity generating rms had received some
of their emission permits for free, they nevertheless were
costing the free receipts at the prevailing market price
and using this enhanced cost base to justify price increases
to customers. The environmental policy thereby had not
insignicant, although clearly unanticipated, distributional
consequences, with customers loosing and the nancial
interests of capital and no doubt senior management gaining. Moreover the regulatory authority, Ofgem, the Ofce
of the Gas and Electricity Markets, not only sanctioned this
practice but also agreed with the conceptual basis articulated for it, that of opportunity costing. The seeming logic
of economics was accepted without question. The press
seemed to have a different approach, however, taking what
might be seen as a more ethical stance in emphasising the
resultant windfall prots. Fuel rms set for 11bn windfall in CO2 trading, exclaimed one headline (The Guardian,
10 August 2008; Polluters stand to make hundreds of millions from European carbon permit scheme, declared another (The Guardian, September 13, 2008). Observing the
operation of the European scheme from afar, others also
seemed to recognize the gap between the rationale built
into the scheme and the prot making corporate response
(see Williams-Derry & de Place, 2008), with the Market
Advisory Committee of the California Air Resources Board
(2007) rather gently noting that The free allocation of
emission allowances generates rents that is, prots beyond the normal expected return to capital to recipients
of the free allowances.
For anyone who is not used to such corporate interest in
relatively obscure academic concepts, the speed with
which the concept of opportunity cost was utilised is not
without interest. Despite its articulation in many cost
and management accounting textbooks, the concept has
never appeared to be in frequent use in practice. Economists may propagate it but conventional costing almost
invariably overrules it. But in this instance, conventional
costing would have attributed a zero cost to a gift, with
rms thereby not recognizing it as a cost in the determination of prices. Prices might thereby be lower, particularly in
a regulatory environment where justications for price increases might be required, and, as a result, the potential for
prot enhancement is sacriced. But corporate actions in
the United Kingdom and elsewhere (Sijm, Neuhoff, & Chen,
2006) suggested that prot enhancement was a dominant
concern, this seemingly providing a utility to even an obscure concept. Indeed the subsequent literature on the
operation of the European Emission Trading Scheme is
impregnated with the language of opportunity cost.
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The top award was given to BT Group plc, not least for
displaying a strong integration of sustainability concerns
into the core business strategy (ACCA, 2008, p. 8).
Whether the report was inclined towards legitimacy or a
more genuine interest in enhancing transparency was not
clear, although at the very least one would like to know
much more about whether those changes in strategy also
changed action. Often strategies have a complex and diffuse relationship with the world of action. Despite this,
corporate and consultancy rms discussions of environmental reporting still place far too much attention on
changing strategy and far too little on changing action!
More understandably the joint awards for the small and
medium sized enterprise sector went to Traidcraft, one of
the main British movers in the area of fair-trade, and Reap,
a local sustainable development organization in Scotland.
Interestingly for both of these organizations the judges primarily made comments on what they were actually doing
and the reporting and assessment of it whereas for the
more corporate BT more emphasis was placed on strategy, target(s),the future and its developmental programme. Compared with the action orientation for
Traidcraft and Reap, interestingly BT appeared to be residing more in the realms of reporting intentions.
Of the other short listed reports, the joint runners up
were The Co-operative Group and Unilever, the rest being
Anglo American plc, British American Tobacco plc, BHP
Billiton, BP plc, Camelot Group plc, GlaxoSmithKline, Royal
Dutch Shell plc, Vodafone Group plc and Xstrata plc. Some
of these do indeed suggest that this is an area where further investigation into rationales for environmental and
sustainability reporting might well be illuminating.
Just consider the oil companies, BP and Royal Dutch
Shell. In the United Kingdom BP has invested in an enormous green advertising programme outlining its practices
and intentions in a tiny percentage of its overall business.
Moreover that campaign has been refreshed at the very
time when even its modest moves into renewable and
more environmentally friendly modes of energy production have been cut back. BP has pulled out of renewables
projects in China, India and the United Kingdom and is only
keeping US investments in the area because of the more
favorable tax incentives which provide an acceptable economic return. In contrast, it remains committed to its
involvement with the Canadian tar sands, an oil source
that involves three times as many carbon emissions as ordinary oil production and one which is already having devastating effects on biodiversity (Jowit, 2009). The reality of
its environmental and sustainability performance is therefore an interesting one and some serious questions can be
and should be explored in relation to how its modes of
reporting relate to these. Perhaps some clues are given
by the fact that one of its senior ofcials in the area occupied the post of Vice President of Corporate Responsibility,
Communications and External Affairs. At least such honesty can be appreciated. Not dissimilar issues relate to Royal Dutch Shell. Again investing in the Canadian tar sands
(Macalister & Wearden, 2009), Shell also has a complex
history of involvement in Nigeria, has withdrawn from
investing in renewable energy generation in the Thames
Estuary in the United Kingdom and is considering moving
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